With growing fears around the impact of climate change on business operations, and the world, investors and companies are bringing corporate sustainability to the fore. ESG investing was once considered a niche responsibility. It is now a leading priority.

However, with this growing focus comes a push for companies to produce reliable, high-quality ESG data to satisfy regulatory and investor oversight. Announcing the proposed “Directive on Green Claims” just last week, the European Commission aims to protect consumers from greenwashing by requiring companies to verify their environmental claims and labels. Pushing for stronger regulatory oversight in the UK and as part of an enhanced focus on greenwashing, the Financial Conduct Authority (FCA) published a “Dear CEO” letter in early February, outlining the potential damages that asset manager business models could cause to consumers or markets.

ESG-related statements released by the FCA demonstrate its commitment to cracking down on firms who are deemed to shirk their ESG-related responsibilities. With their introduction of a new ESG sourcebook, the FCA will require asset managers to make their first disclosures in the first half of 2023 and, in the meantime, it will be enforcing against misleading or exaggerated sustainability-related claims in relation to financial products. Repercussions could involve serious fines, disruption to firms and customers, and reputational damage.